updated on 12 November 2019
QuestionAre e-signatures valid in a commercial context, and what are their legal implications?
The Law Commission's September report is designed to clarify “lingering uncertainty” surrounding electronic execution. In a modern setting that leans towards digital, the execution requirement to bring pen to paper often contrasts with an otherwise entirely electronic transaction. Cue current apprehension in the legal industry as to the validity of electronic execution.
Broadly, the report illuminates the situation by first providing the Law Commission's conclusion and explanation on the current law surrounding electronic execution, focusing on electronic signatures. Second, it considers available technologies for electronic signatures, situations of special circumstance and necessary precautions for consumers and vulnerable people. Third and finally, it offers options for reform and recommendation.
The report’s approach is technology-neutral to minimise the risk of being limited and outdated by developments in technology. Importantly the report covers England and Wales only and excludes both wills and registered dispositions made under the Land Registration Act 2002.
With the report in mind, it is important to consider that most contracts are made informally; they are not required to be in writing, or even signed. It is possible to form a contract orally or by exchange of email, provided that the requirements of offer, acceptance, consideration and intention to create legal relations are present. Yet, often parties wish to record their terms in writing – and a signature often signifies their agreement to the terms.
The current law
The Law Commission's position is that electronic signatures are capable of being used for execution purposes. Their conclusion is based on the provisions of the EU electronic Identification, Authentication And Trust Services (eIDAS) regulation, the Electronic Communications Act 2000 (ECA 2000) and case law surrounding electronic signatures, and signatures generally. On the date of the UK's departure from the EU, eIDAS will remain part of domestic law.
The Law Commission's terms of reference were commercial and consumer contracts. Unlike their terms of reference, the Law Commission's stance on electronic execution applies to both a commercial and non-commercial setting (medical, family or criminal practice are provided as non-commercial examples). The report does not seek to mandate the use of electronic signatures in any situation, but rather offers an accessible explanation of the current law. The Law Commission's conclusions are as follows:
To conclude on this part of the report, an electronic signature is capable of being legally valid. The Law Commission does not seek to mandate the use of electronic signatures in a situation. Ultimately, it will be for the parties or relevant public body to decide. As parties seek clarity and consistency, the onus will be on them to determine their systems and practices accordingly.
The surrounding context
Secondly, the report acknowledges that the question of legal validity does not exist in a vacuum. Though not the focus of the report, the Law Commission briefly considers contextual factors such as technical, social and practical considerations. With this as a backdrop, the report discusses the purpose of execution formalities and their significance in different contexts. For the document types considered by the Law Commission, the purpose of formalities is threefold: (i) evidential, (ii) cautionary, and (iii) labelling.
In context, electronic signatures present their own challenges. The report emphasises the importance of distinguishing legal validity from parties' evidential weight, security and reliability. For example, an electronic signature may meet the requisite legal formalities, but if there is a dispute about who signed the document, the parties will need to consider the evidential weight given to the electronic signature. Arguably this situation could apply to a non-electronic signature; though the report looks at this issue in an electronic context.
Likewise, security factors are considered. Certain electronic signatures will be less secure than others; and software, written by humans, is not free from human error. Reliability is also key and an electronic signature may not always be reliable. The report outlines the registration requirement for certain documents to take effect. If a registrar requires 'wet ink' execution, the parties will not be able to execute the document electronically, regardless of the current legal standing. To ascertain the current position, the Law Commission contacted certain registrars (see pages 25-26 of the report).
Under the Law Commission's report and 2018 consultation paper, stakeholders expressed concern for consumers, vulnerable parties and their use of electronic signatures. In the Commission's consultation paper, consumers were noted to be more likely to enter into contracts through rush, error, or fraud, if they used electronic signatures. Equally, 'digital poverty' could harm vulnerable or older individuals, if documents are required to be executed electronically.
To conclude this section, the report acknowledges that though these are important areas of concern that require careful consideration, they are not the focus of the report, which is the general law surrounding electronic signatures.
Option for reform and recommendation
Thirdly and finally, the report does not make a formal recommendation for legislative reform surrounding electronic execution. Though a single statutory statement may increase electronic signature confidence and commercial efficiency, this did not outweigh the concerns of disrupting existing confidence and established practices in electronic signatures. Additionally, legislative reform would not extinguish concerns in the trust, safety and reliability of electronic signatures. Nor would it protect vulnerable individuals or consumers, which fall in the remit of specific legislation.
In the Law Commission's view, the codification of electronic signatures was an option for reform. The government may consider codifying the law on electronic signatures to improve accessibility. This should have wide application – not limited to a commercial setting. Additionally, the government should consider if some document types should be excluded from electronic execution. See page 58 of the report for a possible formulation of what a statement may look like.
The Law Commission recommends an industry working group to consider non-legal and practical issues surrounding electronic execution. The Law Commission suggests that an industry working group would be better placed to develop guidance in this area and should have an interdisciplinary membership. The Law Commission also recommends reform in relation to video witnessing, as well as a review of the law of deeds.
To conclude, electronic execution is still in its infancy. If established, it will remain to be seen the effect of the industry working group in tackling lingering uncertainty surrounding electronic execution.
A full copy of the report can be found here.
Kelly Johnson is a first-year trainee solicitor at DWF. She is based at the firm’s London office.